Various provisions in respect of these two types of borrowings from overseas are included in the following three Regulations framed under FEMA:. These Regulations are amended from time to time to incorporate the changes in the regulatory framework and published through amendment notifications.
Instructions issued in respect of aforesaid borrowing transactions have been compiled in this Master Direction. The document also contains the terms and conditions related to borrowing and lending in foreign currency by authorised dealer and by persons other than authorised dealer. It may be noted that, whenever necessary, Reserve Bank shall issue directions to Authorised Persons through A. The Master Direction issued herewith shall be amended suitably simultaneously.
In the case of fixed rate loans, the swap cost plus spread should be equivalent of the floating rate plus the applicable spread. Framework for raising loans through External Commercial Borrowings. ECBs are commercial loans raised by eligible resident entities from recognised non-resident entities and should conform to parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc. The parameters apply in totality and not on a standalone basis.
The ECB Framework enables permitted resident entities to borrow from recognized non-resident entities in the following forms:. Under the approval route, the prospective borrowers are required to send their requests to the RBI through their ADs for examination. While the regulatory provisions are mostly similar, there are some differences in the form of amount of borrowing, eligibility of borrowers, permissible end-uses, etc.
While the first six forms of borrowing, mentioned at 2. Various parameters of raising loan under ECB framework are mentioned in the following sub-paragraphs. The minimum average maturities for the three tracks are set out as under:. The call and put option, if any, for FCCBs shall not be exercisable prior to 5 years.
The list of entities eligible to raise ECB under the three tracks is set out in the following table. Companies engaged in miscellaneous services viz. Entities engaged in micro-finance activities to be eligible to raise ECB: Further, their participation under this track is subject to the prudential norms issued by the Department of Banking Regulation, RBI. Indian banks are not permitted to participate in refinancing of existing ECBs.
The certificate of due diligence should comprise the following: Individual lender has to obtain a certificate of due diligence from an overseas bank indicating that the lender maintains an account with the bank for at least a period of two years.
The all-in-cost requirements for the three tracks will be as under:. For ECB with minimum average maturity period of 3 to 5 years - basis points per annum over 6 month LIBOR or applicable bench mark for the respective currency. For ECB with average maturity period of more than 5 years — basis points per annum over 6 month LIBOR or applicable bench mark for the respective currency.
The end-use prescriptions for ECB raised under the three tracks are given in the following table:. Import of capital goods including payment towards import of services, technical know-how and license fees, provided the same are part of these capital goods;. Acquisition of shares of public sector undertakings at any stage of disinvestment under the disinvestment programme of the Government of India;.
Shipping and airlines companies can raise ECB only for import of vessels and aircrafts respectively 5. For other eligible entities under this track, the ECB proceeds can be used for all purposes excluding the following:. The individual limits refer to the amount of ECB which can be raised in a financial year under the automatic route. The individual limits of ECB that can be raised by eligible entities under the automatic route per financial year for all the three tracks are set out as under:.
ECB proposals beyond aforesaid limits will come under the approval route. For computation of individual limits under Track III, exchange rate prevailing on the date of agreement should be taken into account.
For ECB raised under the automatic route, the ECB liability of the borrower including all outstanding ECBs and the proposed one towards the foreign equity holder should not be more than four times of the equity contributed by the latter. For ECB raised under the approval route, this ratio should not be more than 7: For the purpose of ECB liability: Where there are more than one foreign equity holders in the borrowing company, the portion of the share premium in foreign currency brought in by the lender s concerned shall only be considered for calculating the ratio.
ECB can be raised in any freely convertible foreign currency as well as in Indian Rupees. Further details are given below:. Change of currency of ECB from one convertible foreign currency to any other convertible foreign currency as well as to INR is freely permitted.
Change of currency from INR to any foreign currency is, however, not permitted. Change of currency of ECB into INR can be at the exchange rate prevailing on the date of the agreement between the parties concerned for such change or at an exchange rate which is less than the rate prevailing on the date of agreement if consented to by the ECB lender. Also, the entities raising ECB under the provisions of tracks I and II are required to follow the guidelines for hedging issued, if any, by the concerned sectoral or prudential regulator in respect of foreign currency exposure.
Wherever hedging has been mandated by the RBI, the following should be ensured:. The ECB borrower will be required to cover principal as well as coupon through financial hedges. The financial hedge for all exposures on account of ECB should start from the time of each such exposure i.
A minimum tenor of one year of financial hedge would be required with periodic rollover duly ensuring that the exposure on account of ECB is not unhedged at any point during the currency of ECB. The arrangement shall be subject to the following:. The arrangements may be permitted subject to the following:. Pledge of shares of the borrowing company held by the promoters as well as in domestic associate companies of the borrower is permitted.
Pledge on other financial securities, viz. A copy of Board Resolution for the issue of corporate guarantee for the company issuing such guarantee, specifying name of the officials authorised to execute such guarantees on behalf of the company or in individual capacity should be obtained. Specific requests from individuals to issue personal guarantee indicating details of the ECB should be obtained.
Such security shall be subject to provisions contained in the Foreign Exchange Management Guarantees Regulations, Further, financial intermediaries viz. The borrowing entities will be governed by the guidelines on debt equity ratio issued, if any, by the sectoral or prudential regulator concerned. ECB proceeds are permitted to be parked abroad as well as domestically in the manner given below:. ECB proceeds meant only for foreign currency expenditure can be parked abroad pending utilization.
These term deposits should be kept in unencumbered position. Conversion of ECBs, 18 including those which are matured but unpaid , in to equity is permitted subject to the following conditions: Consent of other lenders, if any, to the same borrower is available or atleast information regarding conversions is exchanged with other lenders of the borrower.
For conversion of ECB dues into equity, the exchange rate prevailing on the date of the agreement between the parties concerned for such conversion or any lesser rate can be applied with a mutual agreement with the ECB lender. It may be noted that the fair value of the equity shares to be issued shall be worked out with reference to the date of conversion only. Such cases shall be considered keeping in view the overall guidelines, macroeconomic situation and merits of the specific proposals ECB proposals received in the Reserve Bank above certain threshold limit refixed from time to time would be placed before the Empowered Committee set up by the Reserve Bank.
The Empowered Committee will have external as well as internal members and the Reserve Bank will take a final decision in the cases taking into account recommendation of the Empowered Committee.
Borrowings under ECB Framework are subject to reporting requirements in respect of the following:. Permitted changes in ECB parameters should be reported to the DSIM through revised Form 83 at the earliest, in any case not later than 7 days from the changes effected.
While submitting revised Form 83 the changes should be specifically mentioned in the communication. Subsequent filing of ECB 2 Return is not required. FCEBs can be issued only under the approval route and shall have minimum maturity of 5 years. The bonds are exchangeable into equity share of another company, to be called the Offered Company, in any manner, either wholly, or partly or on the basis of any equity related warrants attached to debt instruments.
Issuance of FCEBs shall conform to the provisions contained in Regulation 21 of the Foreign Exchange Management Transfer or Issue of any Foreign Security Regulations, read with Schedule IV to the Regulations which contain eligibilities in respect of the issuer, offered company, subscriber, permitted end-uses, etc.
Indian banks are not permitted to participate in refinancing of existing ECB. Changes in the Currency of Borrowing: Designated AD Category I banks may allow changes in the currency of borrowing of the ECB to any other freely convertible currency or to INR subject to compliance with other prescribed parameters. Change of the AD Category I bank: Changes in the name of the Borrower Company: Change in the recognized lender: Designated ADs Cat egory I may approve the requests from the ECB borrowers for change in the recognized lender provided a the original lender as well as the new lender are recognised lender as per extant ECB guidelines and, b there is no change in the other terms and conditions of the ECB.
Change in the name of Lender: Designated AD Cat egory I banks may permit changes in the name of the lender of ECB after satisfying themselves with the bonafides of the transactions and ensuring that the ECB continues to be in compliance with applicable guidelines.
Prepayment of ECB may be allowed by AD Category I banks subject to compliance with the stipulated minimum average maturity as applicable to the contracted loan under these guidelines. Change in the end-use of ECB proceeds: The designated AD Category I banks may approve requests from ECB borrowers for change in end-use in respect of ECBs availed of under the automatic route, provided the proposed end-use is permissible under the automatic route as per the extant ECB guidelines 7.
Reduction in amount of ECB: Designated AD Category I banks may approve reduction in the amount of ECB irrespective of the number of occasions with or without any changes in draw-down and repayment schedules, average maturity period and all-in-cost duly ensuring compliance with the applicable ECB guidelines.
Change in all-in-cost of ECB: Refinancing of existing ECB: Extension of matured but unpaid ECB: The designated AD Category I bank may allow extension of matured but unpaid ECB subject to the consent of lender, without involvement of additional cost and fulfilment of reporting requirements. While permitting changes under the delegated powers, the AD Category I banks should ensure that:. Further, these changes should also get reflected in the ECB 2 returns appropriately.
The primary responsibility for ensuring that the borrowing is in compliance with the applicable guidelines is that of the borrower concerned. Designated AD Category I banks are permitted to approve elongation of repayment period for loans raised under the erstwhile USD 5 Million Scheme, provided there is a consent letter from the overseas lender for such reschedulement and the reshedulement is without any additional cost.
Entities raising ECB under the framework in force prior to December 02, can raise the said loans by March 31, provided the agreement in respect of the loan is already signed by the date the new framework comes into effect.More...